Free Lunch (18 page)

Keiser is untroubled by the forced taking of another man's land for his benefit. “So long as the owner is fairly
compensated,” Keiser said, he did not see an issue.

Cook does see an issue. “It's morally
offensive for government to take one man's land to benefit another,” he said. “It's about guys with money making more money” at
the expense of those who have less. “His project is no more important than my project, his family is no more important than my
family.”

But the dam project is small potatoes in terms of the financial rewards going to Keiser.
So are some minor property-tax breaks he sought, worth less than $100,000 per year. The real benefit comes from a subsidy
embedded in the scaffolding of the economy, one that showers Keiser with riches for just being there, though he has worked to
maximize this subsidy. By Keiser's measure, the subsidy works out to about $37,000 for each full-time job at his Bandon Dunes
Golf Resort. Including fringe benefits and tips paid to the workers, that is the average pay for these jobs. This subsidy is likely
worth twice that much.

Keiser's dream has turned into pure gold. Even though Bandon is
remote, each year it draws some of the wealthiest in the world. While many players come by car, the rich come in private jets.
Before Bandon Dunes opened in 1999, about three private jets a year landed at the airport in Coos Bay, a 25-minute drive from the
golf links. By 2006, there were 5,000 jets a year. Gary W. LeTellier, the airport director, expects 7,000 or more jets per year once a
new terminal and parking aprons are finished in 2008 to serve all the Lears, Gulfstreams, Citations, and even Airbus personal jets
delivering golfers to the Oregon coast.

This airport-construction subsidy for Keiser will cost
$31 million, half from the ticket tax paid by commercial airline passengers and related air travel fees and half from the Oregon state
lottery, which makes most of its money from the working poor hoping to strike it rich. It is a subsidy he sought and paid advisers to
lobby to obtain. Without the airport expansion he would not be moving so quickly to add a fourth, a fifth, and perhaps more golf
courses in the Bandon area.

The really big subsidy, though, comes from the policies Congress
set on the personal use of corporate jets in 1985. When a corporate executive uses the company jet for personal flights, he does
not pay anything. Instead the value of the trip is treated as a taxable fringe benefit, just like the personal use of a company car. But
the way Congress values that trip means the executive pays only pennies of the real cost and then only in the form of higher
income taxes. Taxpayers pick up one-third of the real cost because buying and operating a corporate jet is a tax-deductible
business expense. Shareholders of publicly traded companies pick up the other two-thirds. That means ordinary folks who have
put their retirement money into companies are dinged twice for this executive perk, once as taxpayers and a second time as
investors.

In calculating the value of the fringe benefit that executives get, Congress leaves out
huge portions of the real cost. First, the value is limited to what are called incremental costs, which excludes the basic costs of
buying the plane, staffing it, and insuring it, but does cover fuel and landing fees. Then the government excludes the cost of
“positioning” flights. For example, the head of one New York investment bank took the company plane to China on business, then
sent it back to Chicago to pick up his son and fly him to a ski vacation in Colorado, and then had the plane return to Asia to pick
him up. Only the two-hour flight from Chicago to Colorado was counted as a fringe benefit.

Many companies reimburse executives for the taxes they must pay on the fringe benefit of making personal
use of such planes. Some even pay the taxes on the taxes, making the trips free rides in every sense of that word.

Keiser leases a corporate jet, a Gulfstream. But since his is a privately held enterprise, he bears the full
after-tax cost of using the plane, in contrast to the subsidy for executives of publicly traded companies.

Some people, including those who claim they favor less government and oppose subsidies, argue that
Keiser is not the beneficiary of this corporate jet subsidy. But even Keiser says he is. “Certainly from the recipient point of view,”
Keiser said, “I'm pleased that there is a subsidy and know very well that it is a subsidy that can be changed at any point in time.
That is why we have a Congress, to look at things like that.”

Keiser is not unique in benefiting
from this subsidy. Disney World, the Super Bowl and golf courses like CSX's at Greenbrier in West Virginia also benefit from the
personal use of corporate jets. What makes Bandon Dunes distinctive is that there is no other beneficiary for the use of the airport
at Coos Bay. Commercial passenger traffic has been steady for years at about 100 passengers a day. And those corporate jets,
except maybe three per year, are drawn by the golf links Keiser owns.

Such is the makeup of
the American economy today that subsidies are built right into the framework. To Bandon and nearby Coos Bay, the subsidies
seem like a godsend, creating hundreds of desperately needed jobs. But to the overall economy the subsidy is a drain, weakening
the economy, because the subsidies by even the narrowest measure exceed the value of the new jobs. Add in all the costs of the
subsidies, and the part-time jobs at Bandon Dunes, and it is still a net loser. And for what? For golf.

Each time an executive takes the company jet to play at Bandon Dunes you pay part of the cost. And the
airport improvements, done solely to benefit Bandon Dunes, are also paid for when you buy a commercial airplane ticket or an
Oregon lottery ticket. Perhaps we have not moved so far since the poet Sarah Northcliffe Cleghorn wrote about golf and inequality
a century ago:

While Bandon Dunes is a story of how subsidies, the largest of
them subtle and hidden, benefit one man, there are whole industries that rely on subsidies for their profits. One industry shifts
almost all of its labor costs onto taxpayers.

T
HREE DOZEN TERRIFIED CHILDREN RAN SCREAMING INTO THE
ROSS
Snyder Recreation Center in the depressed South Central area of Los
Angeles. Arby Fields, just eight months into his job as the recreation director, stepped outside to investigate. Using his hand as a
visor against the blazing July sun, Fields saw about 20 young men crossing the park, clothing draped over their guns. “I shut the
doors and called the cops,” he said.

Fields called again. And he called yet again. Finally, four
squad cars arrived—three hours later.

Fields worked with poor kids in some of the most
troubled parks in Los Angeles for 13 years. He heard shots fired three or four times a week. Hector Hernandez, the city's chief of
park security, called them the “terrorized parks.” Despite the dangers, police response was erratic. Sometimes the police arrived so
fast it seemed that they had been parked around the corner. Far more often the response was frighteningly slow and, a few times,
the cops never showed up. Guessing how long it would take the cops to arrive was like trying to predict the weather on a Tuesday
next March.

Not being able to get a cop when you need one is becoming a more common
problem across America. People who call the police for help are discovering that they may wait a long time for the cops to show up.
Calls to 911 often are put on hold while music plays. In 1996 police answered calls involving property crimes within 10 minutes
more than 34 percent of the time. That fell to 27 percent of the time in 2003, Justice Department research found.

Why is this happening? Has there been a massive surge in crime? No. Crime is down, way down. Since 1980,
the violent crime rate has fallen by a fifth. For property crimes the rate is down more than a third. Nor is it a problem of too few cops.
America has more police today than in 1980. And the number of police officers per capita is higher today.

So if crime is way down and the number of police officers is up, why is it taking longer for the police to
respond to calls for help? The answer is a free lunch being served to one industry—the companies that make, install, and monitor
burglar alarms.

In many cities and suburbs, one of every eight calls for police service comes
from a company that monitors burglar alarms. Taxpayers spent well north of $2 billion to respond to these calls, a subsidy to the
alarm industry, which is spared that expense. More than a fourth of this subsidy goes to a single corporation, Tyco International.
Tyco was at the center of the Wall Street stock scandals, with investors losing tens of billions of dollars and its chief executive,
Dennis Kozlowski, and its chief finance officer, Mark Schwarz, going to prison for stealing more than $600 million. Tyco is also
infamous for having its legal headquarters in Bermuda, even though its operations are mostly in America. This tax address of
convenience allows it to profit from customers in the United States while not sharing in the burden of maintaining the
government.

While Tyco is by far the biggest player in the burgeoning burglar alarm business,
other big players include General Electric, Honeywell, and Brink's. This particular free lunch is so lavish that the taxpayers provide
all of the profits the industry reports. Being able to collect huge sums from the taxpayers explains why other companies are trying
to move into the alarm business, including cable television providers and some electric utilities.

As with many subsidies, this one is subtle. It does not appear in any government budget. No city council,
legislature, or Congress voted to authorize it. Instead, it flows from a government policy that the burglar alarm companies exploit.
But by listening carefully to the industry's television commercials the subsidy can be discerned.

Since 1980, the number of murders in the United States has declined by almost half. But from the alarm
industry's alarming commercials, no one would know that. These commercials exploit the fear of crime promoted by local
television news, which emphasizes violence out of all proportion to the actual risks. “If it bleeds, it leads” is the standard for local
television news.

The commercials are effective. From 1995 to 2000, the number of homes with
burglar alarms increased 50 percent, the industry's data show. A typical commercial depicts a lone suburban home on a dark and
stormy night, a wild-eyed villain prying at a door. In one of these commercials the bad guy clutches a bowie knife between his teeth.
Inside the house, the little woman, Hollywood beautiful, cowers in fear, arms around her little ones. Then the alarm goes off, turning
on the porch lights. The burglar flees and the announcer's calming voice says that because the family bought an alarm system,
“the police are on their way.”

That's the subsidy. The burglar alarm company charges $29 a
month and all it does is telephone the police. What people are paying for is to have uniformed officers show up, and that is
expensive. The alarm company charges for a service whose real costs it fobs off on the taxpayers. Here is how it works: When an
alarm trips, an electronic device automatically dials a monitoring station. The largest is run by a New Jersey firm called Amcest,
which gets automated calls like this from across the nation. At the monitoring station, the call opens a display on a computer
screen with details about the customer. The technician then calls the home to ask if all is well. If a predetermined question is not
answered in the right way, or no one answers, the technician then calls the local police.

This is
a lucrative gambit. The cost of monitoring is tiny. The cost of sending someone to check out an alarm is much greater. If the alarm
companies checked out the alarms themselves their profits would disappear, the industry's own data indicate.

Of the $29 average monthly fee for monitoring, $22 is gross profit for the alarm company, according to Stat
Resources, whose market research is cited by the industry as the most reliable source of information. Many small alarm companies
hire another firm to do the monitoring, paying on average less than five dollars a month for this service.

This means that about 80 cents out of each dollar that customers pay for monitoring counts as gross
profit.

Gross profit is not the same as net profit, which is what is left after deducting all costs.
Still, burglar alarms are an exceptionally lucrative business. After meeting all expenses, the industry keeps almost 24 cents out of
each dollar as profit, reports by Stat Resources showed. That is a much bigger profit than corporations overall, which keep as
profit about a dime from each dollar they ring up on the cash register.

These profits are huge
because the alarm industry does not pay its largest single cost, labor to check out alarms. The taxpayers pick up this expense.
Each time the police check out an alarm it costs more than $50, the police in Seattle and other cities have determined. The average
alarm goes off more than once each year. The police responded to about 38 million alarms in 2000 at a total cost to taxpayers of
$1.9 billion.

The burglar alarm industry collected $7.9 billion from residential and commercial
burglar alarm customers that year. So if the industry's estimates are reliable, it means that profits were almost $1.9 billion, almost
exactly the value of the taxpayer subsidy in having police check out false alarms.

This subsidy
is growing because ever more alarms are being installed each year, even though the number of burglaries is falling. Since 1980 the
number of burglar alarms has grown much faster than the population as the price of alarm systems has fallen from about $3,000 to
$600 on average. Many companies install alarms for free or a nominal charge when people sign a long-term contract to have their
alarm monitored. There were 3.8 million burglaries reported in 1980, but fewer than 2.2 million in 2005, a 42 percent decline. Take
into account the larger population and your chance of being burglarized is less than half what it was in 1980.

Having the police respond to burglar alarms may seem to be an appropriate public service. But only one in
five residences has an alarm. This means everyone is paying for a benefit that four out of five people do not receive.

Worse, almost three decades of studies show that virtually all alarms are false. In many cities 99 percent of
alarms prove to be false. In Seattle, for example, police in one recent year checked out 30,000 alarms. They made just 40 arrests as
a result of this work. Each officer on the burglar alarm detail worked more than nine weeks to make one arrest. Other police work
produces almost an arrest per week. This low arrest rate is not surprising, since even when an alarm is real the police are unlikely
to arrive in time to catch the thieves in the act. The average burglary takes less than five minutes. Police on average arrive 40
minutes after learning of an alarm, the Salt Lake City police found.

Another reason that police
burglar alarm squads make few arrests is that up to 60 percent of false alarms are caused not by burglars, but by the customers
themselves. Not setting the alarm properly, leaving ajar a door that the wind blows open, and punching in the wrong entry code are
common causes of false alarms. So are pets, severe winds, and momentary power outages.

It
is not even clear that burglar alarms deter break-ins. Homes with a dog have the same burglary rate as homes with alarms, a study
cited by the industry shows. And that holds true for any dog, even, say, a golden retriever, a breed equally likely to wag its tail at a
burglar as bark a warning. A Justice Department study in Savannah, Georgia, found that having an alarm in a home deterred
burglars. But just putting up a sign stating that a house has an alarm may be as effective. The most effective way to deter daytime
break-ins, the Savannah study found, was to crack down on truancy, a policy that has the virtuous benefit of keeping youngsters
in school.

As is so often the case with subsidies, they encourage waste by those receiving
them. So long as Tyco and other big alarm companies can stick the taxpayers with their labor costs, they have no incentive to
become more efficient by designing better alarms and better ways to detect false alarms.

Tyco
had about 5 million alarm customers in 2004. That indicates Tyco's share of the false-alarm subsidy runs to about a half billion
dollars each year. Looked at another way, Tyco's profits are inflated by a half billion dollars per year because of free labor by the
police. That makes Tyco's profits close to 20 percent larger than they would be if it had to cover these costs. If Tyco had to bear the
costs of this economic pollution, its stock price would drop to reflect the smaller profits. In this way, economic pollution enriches
Tyco executives. Their pay is tied to the company's stock price, which is artificially inflated by this subsidy. This is yet another
example of how government policies subtly take from the many and redistribute to the few.

Industry data show that the massive growth in the burglar alarm industry has come since burglary rates
began falling after 1980. There are many reasons the number of reported break-ins are down, but one of the least appreciated
involves a simple change in government rules, an example of how the rules that define a civilization can lessen crime and make
people safer.

In the sixties and seventies, the federal government and some states, notably
California, experimented with ways to make break-ins more difficult through building design. Carpenters built doors with different
jambs, for example. And they studied what size windows near door handles made it hard to break in and just turn the handle, while
still allowing light to flow in from outside.

This inexpensive research produced changes in
building codes that made new construction less vulnerable to second-story artists, simple changes like the length of a dead bolt
and how it was secured. These lock laws, as builders called them, also had an effect because they drove out the flimsiest locks.
Architects and builders also acquired new knowledge on how design affects vulnerability to break-ins.

These government rules also affected who gets rich, but in a virtuous way. By setting minimum standards
that drove out flimsy locks, the government no doubt harmed makers of those locks and steered business toward higher-quality
products. But it did so by increasing safety, a long-established purpose of government. And it did not do so to enrich any group.
The more important effect was in showing through research how the way that windows and doors are designed, and the materials
used, can make a home more secure, even without incurring extra construction costs.

On the
other hand, increased reliance on burglar alarms makes people less safe. At first blush that may seem odd, but the proof is right in
the official government data. The more that police resources are diverted from activities that produce arrests, the more criminals
get away.

“The time police spent on false burglar alarms could be put to better use on many
other things, including homeland security,” said Professor Erwin A. Blackstone, a Temple University economist who studied the
burglar alarm industry subsidies.

In Los Angeles, for example, during a decade-long period,
the police maintained a 100 percent commitment to responding to burglar alarms while cutting in half their commitment to each
murder. As the number of alarms tripled, the number of hours police spent responding tripled, too. This growth continued until the
equivalent of more than 200 police officers were assigned to what could have been accurately labeled the false-alarm squad.
During those same years, the number of murders in Los Angeles doubled to more than a thousand, while the number of hours the
police devoted to murder investigations remained almost flat. The result? For every dollar the police spent investigating murders,
they spent $1.25 checking out false burglar alarms.